First Republic Bank stock slides despite $30B lifeline; SVB parent files for bankruptcy
Shares of California's First Republic Bank plummeted Friday despite a new $30 billion lifeline for the bank, reflecting continuing fears in the market after a week of banking turmoil.
The bank's stock lost nearly one-third of its value in trading on the New York Stock Exchange, reversing a late Thursday rally after the nation's biggest banks announced they would deposit billions there. The slide came after the beleaguered bank disclosed additional information about its finances and said it was suspending dividend payments to shareholders.
Federal officials helped organize the First Republic intervention, hoping it would put an end to the fears rippling through the system after the failures of SVB and Signature Bank and troubles at Switzerland's Credit Suisse.
Silicon Valley Bank's parent company, meanwhile, filed for Chapter 11 bankruptcy on Friday, just a week after the financial company was seized by regulators and customers rushed to withdraw their money. And shares of Credit Suisse and some regional U.S. banks continued to come under pressure.
The market gyrations extend a week of extreme highs and lows in global banking, showing that markets remain unsettled about bank health despite several government and private-sector rescue packages in the United States and Switzerland, and repeated statements of confidence by the Western world's top financial regulators.
President Joe Biden again endorsed the overall banking system's health on Friday and called for accountability "for those responsible for this mess." The White House said it's asking Congress to strengthen the Federal Deposit Insurance Corporation's ability to claw back compensation — including gains from sales of stock — from executives at failed banks, to fine those executives and to ban them from working in the industry.
"When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again. Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing," Biden said in a statement.
He added that the federal government's "decisive action" is helping stabilize the financial system and pledged again that Americans should feel confident that their deposits are safe.
The roller coaster began with a bank run on SVB last week, followed by a federal intervention over the weekend to guarantee the bank's deposits. Regulators soon after closed New York-based Signature Bank and moved to guarantee its deposits, too. Tensions then shifted to Europe, where Credit Suisse stock plummeted after the 167-year-old giant bank reported problems related to its financial report, prompting Switzerland's central bank to offer up to $54 billion in emergency loans. That intervention, along with Thursday's rescue effort for First Republic, appeared to calm some fears — but Friday trading shows that jitters remain.
The SVB bankruptcy proceedings involve only the bank's parent company, SVB Financial Group, which says it believes it has $2.2 billion of liquidity. The bankruptcy proceeding does not include SVB Capital, a venture capital private credit entity. It also does not include SVB Securities, a broker-dealer under its own management. And, at present, Silicon Valley Bridge Bank, the bank created in the wake of the federal takeover, is operating independently and isn't part of the proceedings.
"The Chapter 11 process will allow SVB Financial Group to preserve value as it evaluates strategic alternatives for its prized businesses and assets, especially SVB Capital and SVB Securities," said William Kosturos, chief restructuring officer for SVB Financial Group. "SVB Capital and SVB Securities continue to operate and serve clients, led by their longstanding and independent leadership teams."
As the nation's biggest banks announced their rescue package for First Republic late Thursday, the ailing bank suspended its dividend payments and disclosed that it had borrowed heavily from the Federal Reserve over the preceding week to shore up its finances.
On Friday, bank analysts at Wedbush Securities downgraded the stock. Reports of a possible distressed sale of First Republic to a larger entity would probably benefit the banking system as a whole but could be a bad deal for First Republic shareholders, Wedbush argued.